ARTICLE: TURNING UP THE BBBEE AND EMPLOYMENT EQUITY HEAT ON WHITE-OWNED BUSINESSES

scalesThe recently published BEE codes and the Employment Equity Amendment Bill (EEAB) can be understood only within the context of the ANC’s overarching National Democratic Revolution (NDR) and its ideology of demographic representivity (DR).

According to the ANC’s 2007 Strategy and Tactics document "A critical element of the programme for national emancipation should be the elimination of apartheid property relations." This would require, inter alia, "the de-racialisation of ownership and control of wealth, including land"; and "equity and affirmative action in the provision of skills and access to positions of management".

No reasonable person would question the need for effective measures to promote and advance black South Africans in the economy, to increase the number of black business owners and to develop black human resources and skills. This process should proceed rapidly, naturally and organically until black South Africans assume their rightful place in the economy on the basis of merit and accomplishment.

However, the BEE/EE process goes much further. The goal toward which the Government is working is the imposition of DR in the private sector in the same manner as it has been imposed in the public sector. According to Minister Rob Davies:

"Black economic empowerment is not just a social and political imperative. We need to make sure that in the country’s economy, control, ownership and leadership are reflective of the demographics of the society in the same way the political space does. That’s why we are saying BEE remains an economic imperative. We cannot expect to grow and develop as a country if the leadership of the economy is still in the hands of only a small minority of the society."

The new BEE codes will further tighten the screws on white-owned businesses. Although the codes are voluntary, they are essential for companies that do business with Government - or require mining licences. Because large companies need to enhance their own BEE credentials by procuring goods and services from smaller suppliers that are BBBEE compliant, there is a cascade effect that is leaving diminishing room for many smaller non- compliant companies to do business.

Where white-owned Small Qualifying Enterprises (SQEs) previously had to comply with only four of the eight categories on the BEE scorecard, they will, from October 2014, have to comply with all five categories of the new system. They will be penalised if they do not meet minimum goals of 40% compliance in three categories - ownership, skills development and enterprise supplier development. Compliance with the ownership category will now require black ownership of 40% of the enterprise which must be 'debt free'. This will be a serious problem for companies that have financed BBBEE shareholders through loans against future dividend flows.

Companies that previously were able to achieve a respectable level 4 BEE rating will now find themselves bumped down to a non-compliant level 7 - unless they substantially improve their scores.

The intention, one suspects, is eventually to ratchet up the goals in future codes until "control, ownership and leadership" of private sector companies - in accordance with Minister Davies’ wishes - reflect the national demographics. i.e. Until they are controlled by black South Africans.

Similarly, the Employment Equity Amendment Bill is also increasing pressure on white- owned businesses. The Bill excises a number of factors that employers could cite for not complying with employment equity targets. These included the availability of suitably qualified people from designated groups; economic and financial factors relevant to the employer’s business sector; the employer’s economic and financial circumstances; and the employer’s staff vacancies and labour turnover.

Most crucially, where the Director-General of Labour was previously required to take into account the demographic profile of the national and regional economically active population when considering employment equity plans, he may now do so at his discretion. The application of national demographics in the Western Cape could seriously jeopardise the prospects of coloured South Africans. This was illustrated in the recent case of employees of the Department of Correctional Services who were refused promotion because they had exceeded their 8.8% national demographic quota in a region where they comprise a 53% majority.

All of this is intended to force the economy toward the NDR’s goal of demographic representivity. It goes hand in hand with similar initiatives to impose DR on universities, in the legal profession, in the public service and elsewhere throughout society.

There are, of course, very good reasons why DR should not be applied to the private sector in the same manner in which it has been imposed on the public sector.

Firstly, there is no constitutional requirement for the imposition of DR outside the public sector.

Secondly, the imposition of DR in the public sector has been one of the main causes of dysfunctionality in government departments. The public sector can, however, continue to function regardless of its performance because it does not have to satisfy customers or produce a profit.

However, if companies are unprofitable they sooner or later go out of business. To succeed they must appoint and promote key personnel on the basis of merit. They must also procure supplies and services according to price, quality and time of delivery - and not race. Entrepreneurs will not start new enterprises - or maintain existing businesses - if they are not able to enjoy, unhindered, the fruits of ownership.

Demographic representivity - as promoted by the EEAB and BBBEE - constitutes social  engineering on a scale that would have made Hendrik Verwoerd gasp in wonder. Where apartheid sought to confine people in Bantustans, DR wants to enclose them in demographic pens in every area of their lives. In both systems race trumps individual merit. Like apartheid ideologists, supporters of NDR believe sincerely that DR is necessary, just and in the long-term interest of all South Africans.

However, like all such exercises that fail to take account of human nature, individual rights and economic reality, it will lead to the most unhappy consequences. It will make it increasingly difficult for the private sector to produce the wealth and jobs on which the future of the country depends. It will also seriously undermine prospects for national unity and for the building of a successful multicultural, non-racial society. The ANC is turning up the BEE and EE heat - but like the proverbial frogs in simmering water - most white business leaders remain mesmerised and motionless in the pot.

By Dave Steward, Executive Director of the FW de Klerk Foundation